So high elasticities mean low tariffs, low elasticities mean high tariffs, and the decline in trade is similar.
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Such elasticities are hard to estimate, because we don't get many natural experiments.
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Volume was down a tick, perhaps even less than maybe what a model -- through elasticities.
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Other health care forecasters are quite transparent about how they determine elasticities in demand for health insurance.
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In particular, economists often go to painstaking lengths to explain how they determine "elasticities" in the insurance market.
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In Corak's research, income elasticities were based on father's and son's earnings for sons born in the 1960s.
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They then build microsimulation models that use those elasticities to project how enrollment changes if premiums go up or down.
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I guess I'm showing a strong preconception here — that done right, analysis will show that trade elasticities remain fairly large.
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The hosiery market isn't a small one, and there are literally thousands of weaves, blends, elasticities, and fibers to confound you.
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The vertical axis shows the intergenerational elasticities compiled by Corak using previous research papers that focus on intergenerational mobility in different countries.
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Economists often determine elasticities by combing through economics literature and seeing what other studies say about how people respond to changes in the health insurance market.
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There, Patricia Yang, a postdoctoral fellow at Georgia Institute of Technology, presented research demonstrating that cube poop is produced by uneven elasticities within the wombat digestive tract.
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"Global oil supply elasticities kick in over a multi-year window ... suggesting higher prices may be needed to slow down demand in 2017," Bank of America-Merrill Lynch's analysts wrote.
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"More specifically, we began to adjust prices on select routes and in select cities based on costs and demand elasticities," said finance chief Brian Roberts of the select fare increases.
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One way to do this may be to do what one recent IMF study did: focus only on large real exchange rate changes, estimate elasticities for lots of countries, and pool the results.
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Whether you opt for root-to-tip highlights or bespoke, painterly balayage, lightening 30-40% of your hair — through bleaching or a high lift tint — means "you now have a combination of different elasticities," says Mancuso, from resilient virgin strands to drier, more damaged ones.
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Other dynamics that can play out over the longer run relate to price elasticities of demand, whereby a sustained period of higher prices could for example accelerate the rate of demand for electric vehicles, along with the pace at which initiatives are deployed by the government to curb oil demand growth.
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Bradbury and Triest implicitly raise this issue when they point out that Nations or eras with greater disparities in pay levels according to educational attainment will, other things equal, have higher intergenerational earnings elasticities, hence, lower mobility, because any level of intergenerational correlation in education translates into greater differences in earnings and, hence, higher correlation of parent and child earnings.
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Elasticities coefficient can also be computed numerically, something that is often done in simulation software.
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With the price elasticity of products, companies can calculate how many consumers are willing to pay for the product at each price point. Products with high elasticities are highly sensitive to changes in price, while products with low elasticities are less sensitive to price changes (ceteris paribus). Subsequently, products with low elasticity are typically valued more by consumers if everything else is equal. The dynamic aspect of this pricing method is that elasticities change with respect to product, category, time, location and retailers.
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These development patterns encourage automobile dependency which contributes to the high long-term demand elasticities of road expansion.
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Many of Binswanger's studies of agricultural dynamics are econometric, with early works including e.g. the measurement of elastcities of factor demand and substitutionBinswanger, H.P. (1974). A cost function approach to the measurement of elasticities of factor demand and elasticities of substitution. American Journal of Agricultural Economics, 56(2), pp. 377–386.
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When the tax lowers the price received by sellers, they in turn produce less. As a result, the overall size of the market decreases below the optimum equilibrium. The elasticities of supply and demand determine to what extent the tax distorts the market outcome. As the elasticities of supply and demand increase, so does the deadweight loss resulting from a tax.
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Douglas Irwin's 1998 paper examines the validity of the opposite tariff hypotheses posed by the Republicans and Democrats in 1890. Irwin looked at historical data to estimate import demand elasticities and export supply elasticities for the US in the years before 1888. He then calculated that tariffs had not reached the maximum revenue rate and that a reduction, not a raise, in the tariff would have reduced revenue and the federal surplus. That confirmed the Democrats' hypothesis and refuted the Republicans'.
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As part of his analysis Clarke also introduced the notion of kinetic orders and a power-law approximation that was somewhat similar to Savageau's power- law expansions. Clarke's approach relied heavily on certain structural characteristics of networks, called extreme currents (also called elementary modes in biochemical systems). Clarke's kinetic orders are also equivalent to elasticities. The fact that different groups independently introduced the same concept implies that elasticities, or their equivalent, kinetic orders, are most likely a fundamental concept in the analysis of complex biochemical or chemical systems.
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The buyers and sellers again share the burden of the tax relative to their price elasticities. The buyers have to pay more for the good and the sellers receive less money than before the tax has been imposed.
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The cross price demand elasticities, the covariation in uncertainty and a measure of effort substitutability were some of the parameters that were used to capture complementarity. This empirical analysis remains as one of the few conducted on this particular subject.
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Meta-regression analyses have been seen in studies of price and income elasticities of various commodities and taxes, productivity spillovers on multinational companies,H. Gorg and Eric Strobl (2001). Multinational companies and productivity spillovers: A meta-analysis. The Economic Journal, 111(475) 723-739.
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His study coincides with the original hypothesis that retail sales taxes are fully shifted to retail prices. Donald Bruce, William Fox, and M. H. Tuttle also discuss tax revenues through sales tax in their article "Tax Base Elasticities: A Multi-State Analysis of Long- Run and Short-Run Dynamics". In this article, they look at how personal state revenues and sales tax bases elasticities change for the short and long term in an attempt to determine the difference between them. With this information, the authors believe that states can both enhance and customize their tax structures, which can be used for careful resource planning.
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Jacobs identifies four problems with respect to the marginal cost of public funds: (1) The lack of consensus in the literature on a common definition of the MCF, notably the dichotomy between the Pigou-Harberger-Browning (PHB) approach using compensated wage elasticities of labor supply and the Atkinson-Stern-Ballard-Fullerton (ASBF) approach using uncompensated wage elasticities of labor supply. (2) Contradicting intuition, standard MCF measures are unequal to one for non- distortionary lump-sum taxes. (3) The normalization of the tax system influences the MCF for both lump-sum and distortionary taxation. (4) Most MCF concepts ignore the reasons for distortionary taxes, namely, redistributional benefits.
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Davis and Wohlgenant concluded that the price elasticities for natural Christmas trees with respect to natural tree prices and annualized artificial tree prices were -0.674 and 0.188. The estimates incorporated survey data from 558 households in Washington, D.C., northern Virginia, southern Maryland and Philadelphia about Christmas tree display preferences. Using the results of empirical estimates derived from the survey the elasticity formula was used to arrive at the first known demand elasticity estimates ever completed for the natural Christmas tree market.Davis, George C. and Wohlgenant, Michael K. "Demand Elasticities from a Discrete Choice Model: The Natural Christmas Tree Market", (JSTOR), American Journal of Agricultural Economics, Vol.
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Examples include own price elasticities for alcohol, tobacco, water and energy. In energy conservation, meta-regression analysis has been used to evaluate behavioral information strategies in the residential electricity sector.M.A. Delmas, Miriam Fischlein and Omar I. Asensio (2013). Information strategies and energy conservation behavior: A meta-analysis of experimental studies 1975-2012.
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In a study with Maw-Cheng Yang, Alan Bowers and Yair Mundlak on the determinants of cross-country aggregate agricultural supply, Binswanger finds only weak short-run supply elasticities within countries.Binswanger, H. et al. (1987). On the determinants of cross-country aggregate agricultural supply. Journal of Econometrics, 36(1–2), pp. 111–131.
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A Hotelling-Faustmann Explanation of the Structure of Christmas Tree Prices. (JSTOR), American Journal of Agricultural Economics 83 (3): 513-525. Retrieved 3 September 2007. A 1993 paper by George C. Davis and Michael K. Wohlgenant made what was, at the time, the only known estimated demand elasticities for the natural Christmas tree market.
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In economics, the Cobb–Douglas production function is a family of production functions parametrized by the elasticities of output with respect to the various factors of production. In algebra, the quadratic equation, for example, is actually a family of equations parametrized by the coefficients of the variable and of its square and by the constant term.
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Henrik Jacobsen Kleven (born in Denmark) is a Danish economist who is currently a Professor of Economics and Public Affairs at Princeton University. His research lies inside the domain of public finance, in particular questions of tax policy. He combines economic theory and empirical evidence, e.g. in deriving microdata-based estimates of elasticities of taxable income.
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To do this requires an estimate of the elasticity of demand for the output of each industry in his sample. He argued that a value of -1 for this elasticity was on the high end of plausible values, because each industry consisted of more than one firm. (The elasticity of demand facing a particular firm is inversely related to its market share. Harberger's assumption clearly implies that individual firms face elasticities far greater than -1, and is thereby fully consistent with the theory of pricing by firms with a degree of market power.) For Harberger's assumed value of demand elasticities, the cost of the resources that would be required to achieve the efficient change in an industry's rate of production is equal to the calculated excess profits in that industry.
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The paper asserts that inherent in any argument for an upper limit on interest rates is an assumption that demand for credit is price inelastic. If the inverse were true, and that market demand was highly sensitive to small rises in lending rates then there would be minimal reason for government or regulators to intervene. The researcher showed that Karlan and ZinmanKarlan, Dean S. and Zinman, Jonathan, Credit Elasticities in Less-Developed Economies: Implications for Microfinance (December 2006) carried out a randomised control trial in South Africa to test the received wisdom that the poor are relatively non-sensitive to interest rates. They found around lender's standard rates, elasticities of demand rose sharply meaning that even small increases in interest rates lead to a significant fall in the credit demand.
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If the elasticity of supply is low, more of the tax will be paid by the supplier. If the elasticity of demand is low, more will be paid by the customer; and, contrariwise for the cases where those elasticities are high. If the seller is a competitive firm, the tax burden is distributed over the factors of production depending on the elasticities thereof; this includes workers (in the form of lower wages), capital investors (in the form of loss to shareholders), landowners (in the form of lower rents), entrepreneurs (in the form of lower wages of superintendence) and customers (in the form of higher prices). To show this relationship, suppose that the market price of a product is $1.00, and that a $0.50 tax is imposed on the product that, by law, is to be collected from the seller.
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The study suggests that block-level elasticities vary so widely that urban planners and economists cannot accurately predict the response in parking demand to a given change in price. The public policy implication is that planners should utilize observed occupancy rates in order to adjust prices so that target occupancy rates are achieved. Effective implementation will require further experimentation with and assessment of the tâtonnement process.
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The connectivity theorems are specific relationships between elasticities and control coefficients. They are useful because they highlight the close relationship between the kinetic properties of individual reactions and the system properties of a pathway. Two basic sets of theorems exists, one for flux and another for concentrations. The concentration connectivity theorems are divided again depending on whether the system species S_n is different from the local species S_m .
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Price elasticities of supply and demand determine whether the deadweight loss from a tax is large or small. This measures to what extent quantity supplied and quantity demanded respond to changes in price. For instance, when the supply curve is relatively inelastic, quantity supplied responds only minimally to changes in the price. However, when the supply curve is more elastic, quantity supplied responds significantly to changes in price.
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A rise in q means that the domestic currency appreciates. q is the natural log of an index number that is set to 1 in the base period (numbered 0 by convention); :ν = stochastic error term assumed to capture all other influences on aggregate demand. a1 and a2 are the respective real interest rate and real exchange rate elasticities of aggregate demand. Empirically, we expect both a1 and a2 to be negative, and 0 ≤ a1/a2 ≤ 1.
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"The article on 'Profit and profit theory' does not contain a single number for what profits are or ever have been, in the United States or any other country, or any reference to any source that might provide such a number", wrote Herbert Stein, who complained "There are articles about elasticities of this or that but no estimate of the elasticity of anything."Stein, Herbert, 1988. "The state of economics", The AEI Economist, January, pp. 1–7, as cited by .
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Moreover, many people will see Ramsey pricing as unfair, especially if they do not understand why it maximizes total surplus. In some contexts, Ramsey pricing is a form of price discrimination because the two products with different elasticities of demand are one physically identical product sold to two different groups of customers, e.g., electricity to residential customers and to commercial customers. Ramsey pricing says to charge whichever group has less elastic demand a higher price in order to maximize overall social welfare.
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The theoretical foundations of the MCF can be found in the excess burden of taxation as measured by equivalent variation, compensating variation and consumer surplus. Relatedly, the social MCF is the basis for the conditions of an optimal tax system and optimal spending on public services. Thus, the outcome of a tax reform can be calculated using pre- and post-reform MCFs as well as price indices. Practically, MCFs can be calculated based on the tax rate and the elasticities of demand and supply.
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Economic effects of subsidies can be broadly grouped into # Allocative effects: these relate to the sectoral allocation of resources. Subsidies help draw more resources towards the subsidised sector # Redistributive effects: these generally depend upon the elasticities of demands of the relevant groups for the subsidised good as well as the elasticity of supply of the same good and the mode of administering the subsidy. # Fiscal effects: subsidies have obvious fiscal effects since a large part of subsidies emanate from the budget. They directly increase fiscal deficits.
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One could predict reflection coefficients that agreed with observation by supposing (like Fresnel) that different refractive indices were due to different densities and that the vibrations were normal to what was then called the plane of polarization, or by supposing (like MacCullagh and Neumann) that different refractive indices were due to different elasticities and that the vibrations were parallel to that plane.Whittaker, 1910, pp.133,148–9; Darrigol, 2012, pp.212,229–31. Thus the condition of equal permittivities and unequal permeabilities, although not realistic, is of some historical interest.
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The greater the extent of spare production capacity, the quicker suppliers can respond to price changes and hence the more price elastic the good/service would be. Various research methods are used to calculate price elasticities in real life, including analysis of historic sales data, both public and private, and use of present-day surveys of customers' preferences to build up test markets capable of modelling elasticity such changes. Alternatively, conjoint analysis (a ranking of users' preferences which can then be statistically analysed) may be used.Png, Ivan (1999). pp. 79–80.
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In economics, a similar concept also named after Le Chatelier was introduced by American economist Paul Samuelson in 1947. There the generalized Le Chatelier principle is for a maximum condition of economic equilibrium: Where all unknowns of a function are independently variable, auxiliary constraints—"just-binding" in leaving initial equilibrium unchanged—reduce the response to a parameter change. Thus, factor-demand and commodity-supply elasticities are hypothesized to be lower in the short run than in the long run because of the fixed-cost constraint in the short run.Samuelson, Paul A. (1983).
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In an attempt to reduce excess burden of consumption taxes, Ramsey proposed a theoretical solution that consumption tax on each good should be "proportional to the sum of the reciprocals of its supply and demand elasticities". However, practically, it is problematic to constrain social planners to one form of taxation. It is better to enable them to consider all possible tax structures. Using Ramsey's rule as a basis for their papers, Peter Diamond and James Mirrlees propose an alternative to Ramsey's proposition by allowing the planner to consider numerous tax systems, and their model has prevailed in taxation theories.
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Frequently used elasticities include price elasticity of demand, price elasticity of supply, income elasticity of demand, elasticity of substitution between factors of production and elasticity of intertemporal substitution. Elasticity is one of the most important concepts in neoclassical economic theory. It is useful in understanding the incidence of indirect taxation, marginal concepts as they relate to the theory of the firm, and distribution of wealth and different types of goods as they relate to the theory of consumer choice. Elasticity is also crucially important in any discussion of welfare distribution, in particular consumer surplus, producer surplus, or government surplus.
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She has more particularly focused on the perceptions of intergenerational mobility, immigration, and inequality and their link to support for redistribution. These Social Economics Surveys are rigorous research tools that can shed light on what is invisible in order datasets: perceptions, beliefs, reasoning, attitudes, views, and detailed individual economic circumstances. Together with Emmanuel Saez and Thomas Piketty, she has presented a model of optimal labor income taxation for top incomes, taking into account standard labor supply responses as well as tax avoidance and compensation bargaining.Thomas Piketty, Emmanuel Saez and Stefanie Stantcheva: Optimal Taxation of Top Labor Incomes A Tale of Three Elasticities.
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Enlightenment among Armenians, sometimes called as renaissance of the Armenian people, came from two sources; First one was the Armenian monks belonging to the Mekhitarist Order. Second one was the socio-political developments of the 19th century, mainly "French Revolution" and establishment of "Russian revolutionary thought." The 18th century generated new schools and libraries and chance to study in the universities of Western Europe for different elasticities of the Ottoman Empire. The initial aim of Protestant missionaries were the conversion of the Muslims and Jews, they soon became involved with Protestant reformation of the Orthodox Armenians.
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In econometrics it is often desirable to have a model of the cost of production of a given output with given inputs--or in common terms, what it will cost to produce some number of goods at prevailing prices, or given prevailing prices and a budget, how much can be made. Generally there are two parts to a cost function, the fixed and variable costs involved in production. The marginal cost is the change in the cost of production for a single unit. Most cost functions then take the price of the inputs and adjust for different factors of production, typically, technology, economies of scale, and elasticities of inputs.
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The growth of market price is determined by the price elasticities of demand and supply. In the case of demand being more elastic than supply, the incidence of the tax falls more heavily on sellers and the consumers feel a smaller growth of price and vice versa. In both cases, the consumers pay more for the good and while the sellers initially receive more money, after the tax is accounted for, they are left with less money than if there were no tax imposed. The tax both raises the price the customers buy the good for and lowers the price the producers are effectively selling the good for.
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More precisely, price elasticity gives the percentage change in quantity demanded when there is a one percent increase in price, holding everything else constant. Price elasticities are almost always negative, although analysts tend to ignore the sign even though this can lead to ambiguity. Only goods which do not conform to the law of demand, such as Veblen and Giffen goods, have a positive elasticity. In general, the demand for a good is said to be inelastic (or relatively inelastic) when the elasticity is less than one (in absolute value): that is, changes in price have a relatively small effect on the quantity of the good demanded.
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In this model, Harberger theorizes that by redistributing the economy's resources, the market will move toward a constant equilibrium in the long-run where the elasticities of substitution are the same for both capital and labor and are then equal to the elasticity of substitution between the two goods being consumed. Furthermore, this can potentially apply to a broader range of conditions. In contrast to this, Martin Feldstein contradicts Harberger's assumptions. Feldstein argues that one of the great shortcomings of Harberger's theories is that up until the point he was writing the article, policy makers, when determining tax changes for corporate income tax, focused solely on the effects in personal income tax.
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If this is the case, then somewhere between 0% and 100% lies a tax rate that will maximize revenue. Graphical representations of the curve sometimes appear to put the rate at around 50%, if the tax base reacts to the tax rate linearly, but the revenue-maximizing rate could theoretically be any percentage greater than 0% and less than 100%. Similarly, the curve is often presented as a parabolic shape, but there is no reason that this is necessarily the case. The effect of changes in tax can be cased in terms of elasticities, where the revenue-maximizing elasticity of the tax base with respect to the tax is equal to 1.
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Depending on the price elasticities of demand and supply, who bears more of the tax or who receives more of the subsidy may differ. Where the supply curve is less elastic than the demand curve, producers bear more of the tax and receive more of the subsidy than consumers as the difference between the price producers receive and the initial market price is greater than the difference borne by consumers. Where the demand curve is more inelastic than the supply curve, the consumers bear more of the tax and receive more of the subsidy as the difference between the price consumers pay and the initial market price is greater than the difference borne by producers.
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For instance, a tax on employment paid by employers will impact on the employee, at least in the long run. The greatest share of the tax burden tends to fall on the most inelastic factor involved—the part of the transaction which is affected least by a change in price. So, for instance, a tax on wages in a town will (at least in the long run) affect property-owners in that area. Depending on how quantities supplied and demanded vary with price (the "elasticities" of supply and demand), a tax can be absorbed by the seller (in the form of lower pre-tax prices), or by the buyer (in the form of higher post-tax prices).
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If the pre-merger elasticity of demand exceeds the critical elasticity then the decline in sales arising from the price increase will be sufficiently large to render the price increase unprofitable and the products concerned do not constitute the relevant market. An alternative method for applying the SSNIP test where demand elasticities cannot be estimated, involves estimating the "critical loss." The critical loss is defined as the maximum sales loss that could be sustained as a result of the price increase without making the price increase unprofitable. Where the likely loss of sales to the hypothetical monopolist (cartel) is less than the Critical Loss, then a 5% price increase would be profitable and the market is defined.
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When considering a system of Engel curves, the adding-up theorem dictates that the sum of all total expenditure elasticities, when weighted by the corresponding budget share, must add up to unity. This rules out the possibility of saturation being a general property of Engel curves across all goods as this would imply that the income elasticity of all goods approaches zero starting from a certain level of income. The adding-up restriction stems from the assumption that consumption always takes place at the upper boundary of the household's opportunity set, which is only fulfilled if the household cannot completely satisfy all its wants within the boundaries of the opportunity set. Other scholars argue that an upper saturation level exists for all types of goods and services.
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Hendel, Lach and Spiegel (2017) studied the cottage boycott econometrically. They find that (i) demand for cottage cheese dropped by 30% because of the boycott; (ii) brand loyalty diminished, and customers become more price sensitive and willing to substitute across brands; and (iii) the increase in prices sensitivity was more pronounced in areas with more usage of social media; this findings suggests that social media played an important role in facilitating consumer mobilization; and (iv) post‐boycott prices were substantially below the profit maximizing levels (as implied by the post‐boycott demand elasticities), suggesting that firms restrained their pricing policies, most likely because they were concerned with the boycott spreading to other products and with the increased likelihood of government intervention due to high prices.
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In his book The Intellectual and the Marketplace, for instance, he proposed Stigler's Law of Demand and Supply Elasticities: "all demand curves are inelastic and all supply curves are inelastic too." The essay referenced studies that found many goods and services to be inelastic over the long run and offered a supposed theoretical proof; he ended by announcing that his next essay would demonstrate that the price system does not exist. Another essay, "A Sketch on the Truth in Teaching," described the consequences of a (fictional) set of court decisions that held universities legally responsible for the consequences of teaching errors.George J. Stigler, 1973. "A Sketch of the History of Truth in Teaching," Journal of Political Economy, 81(2, Part 1), pp. 491–95.
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In a 2018 paper, "In Search of the Armington Elasticity", Feenstra and co-authors address the long-standing issue in international trade of measuring the degree of substitution between goods imported from different countries, versus the degree of substitution between imported and domestically-produced goods. They make use of a novel dataset to estimate both elasticities and assess the "rule of two", under which foreign goods are twice as substitutable for each other as they are for domestically-produced goods. They confirm that result, though with confidence intervals that are not that tight. Feenstra has also conducted research on the impact of China’s joining the WTO on its exports– the so- called China shock – and on employment in the United States and elsewhere.
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This is true for several studies of the Danish elasticity of taxable income - a central term in modern economic tax theory, measuring how tax payers' behaviour is affected by tax changes. The paper "Estimating Taxable Income Responses Using Danish Tax Reforms", published in American Economic Journal: Economic Policy in 2014 presents elasticities of taxable labour income of 0.05 for wage earners and 0.1 for self-employed business people, whereas the elasticity of taxable capital income is approximately 2-3 times larger than for labour income. The results are based on estimated effects of four Danish income tax reforms from 1987 to 2005.Kleven, Henrik Jacobsen and Esben Anton Schultz (2014): "Estimating Taxable Income Responses Using Danish Tax Reforms." American Economic Journal: Economic Policy, 6(4): 271-301.
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They found that for state personal income tax bases as compared to sales taxes, the average long-term income elasticity is more than doubled and the short-term display disproportionate results higher than the long-term elasticities. The authors contend with the conventional literature by declaring that neither the personal income tax nor the sales tax is, at least, universally, the more volatile tax. Though, the authors concede that in certain situations, the sales tax is more volatile, and in the long term, personal income taxes are more elastic. Furthermore, in understanding this argument, it must also be considered, as Alan Auerbach, Jagadeesh Gokhale, and Laurence Kotlikoff do in "Generational Accounting: A Meaningful Way to Evaluate Fiscal Policy", what the implications to optimal taxation are for future generations.
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Supply side economics has been criticised for benefiting high income earners, as graph shows the change in top 1% income share against the change in top income tax rate from 1975–1979 to 2004–2008 for 18 OECD countries: the correlation between increasing income inequality and decreasing top tax rates is very strongOptimal Taxation of Top Labor Incomes: A Tale of Three Elasticities Thomas Piketty, Emmanuel Saez, Stefanie Stantcheva, NBER, Nov. 2011 Critics of supply-side policies emphasize the growing federal deficits, increased income inequality and lack of growth. They argue that the Laffer curve only measures the rate of taxation, not tax incidence, which may be a stronger predictor of whether a tax code change is stimulative or dampening. David Harper claims that some economists dismiss the theory as offering "nothing particularly new or controversial as an updated view of classical economics".
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Faria et al. measure efficiency in terms of an estimated production function in the context of a stochastic frontier model, such that: ln(yt) = β0 \+ βt1ln(xt1) + β2ln(xt2) + εt \- ut where y = output; t = 1,...,n; xt1 = capital for firm t; xt2 = labor for firm t; εt are iid N(0, σ2ε); ut are independent inefficiency components also independent of εt with distributions with support in (0,+infinite); the constants βt are unknown elasticities. Their data comes from Sistema Nacional de Informações sobre Saneamento (SNIS) from 2002 for 279 firms (148 of which, 135 public and 13 private, had sufficient data for inclusion in the regression). Faria speculates that the relatively low difference in efficiency in comparison to private sector participation in other countries can perhaps be explained by the relative weakness of the Brazilian regulatory regime.
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The Chamley–Judd zero capital income tax result—developed in Chamley (1986) and Judd (1985)—states that in a dynamic Ramsey model featuring agents with infinite lives, an asymptotically zero tax on capital income is optimal. The result is based upon the intuition that the growth of the tax wedge between current and future consumption is related to the growth of the time horizon. So as to avoid unlimited growth in tax compounding as the horizon extends, the optimal average capital tax rate approximates zero. The result can also be interpreted in Corlett–Hague terms: As the horizon grows to infinity, both present and future consumption become equally complementary to leisure as their elasticities become constant; since, according to the Corlett–Hague rule the taxation of commodities should depend on their complementarity to leisure, present and future consumption should be taxed at equal tax rates.
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Consider a 7% import tax applied equally to all imports (oil, autos, hula hoops, and brake rotors; steel, grain, everything) and a direct refund of every penny of collected revenue in the form of a direct egalitarian "Citizen's Dividend" to every person who files income tax returns. The import tax (tariff) will increase prices of goods for all domestic consumers, compared to the world price. This increase in the price of goods will result in two types of dead-weight loss: one attributable to domestic producers being incentivized to produce goods that would be more efficiently produced internationally, and the other attributable to domestic consumers being forced out of the market for goods that they would have bought, had the price not been artificially inflated by the tariff (import tax). The actual cost of the tax will be borne by whichever party (producers or consumers) has the more inelastic demand (see earlier section on relative elasticities), regardless of whether consumers buy domestic or foreign goods, and regardless of where the producers make their goods.
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